As neighbours cut rates, all eyes on Bank Negara's next move

New Straits Times

08-07-2025

Muhammed Ahmad Hamdan , Diyana Isamudin
KUALA LUMPUR: As central banks across Southeast Asia move to cut interest rates in response to easing inflation and slowing global growth, Bank Negara Malaysia has so far resisted the trend.
The central bank has maintained the Overnight Policy Rate (OPR) at three per cent for 12 consecutive meetings since May 2023. The upcoming Monetary Policy Committee (MPC) meeting on Wednesday could mark a turning point.
In recent weeks, more economists and research houses have revised their forecasts to include a possible rate cut, pointing to softening domestic demand, sluggish exports and dovish signals from Bank Negara's latest policy statement.
Across the region, Indonesia, Thailand, the Philippines and Vietnam have already taken steps to ease monetary policy in 2025. Singapore, which manages monetary conditions through its exchange rate, has also shifted to a more accommodative stance.
This has raised questions over whether Malaysia risks falling behind the curve as regional peers act to shore up growth momentum.
At its last meeting on May 8, Bank Negara kept the OPR unchanged but surprised markets with a 100-basis-point cut in the Statutory Reserve Requirement (SRR) to inject liquidity into the banking system.
The central bank said the move was in line with its assessment of inflation and growth prospects, supported by domestic demand and resilient global trade.
However, unlike previous statements, it omitted references to monetary policy being "appropriate and supportive of the economy."
That omission caught the attention of analysts, who interpreted it as a subtle shift in tone, possibly laying the groundwork for future easing.
Since then, expectations of a rate cut have gathered momentum.
At least five research houses, including HSBC Global Investment Research, CIMB Securities, UOB Global Economics and Markets Research and Kenanga Research, now expect Bank Negara to lower the OPR by 25 basis points at the July 9 meeting.
They cite weak consumer spending, a muted recovery in exports and a more stable ringgit following the SRR cut.
Their views are echoed by economists, including Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid and Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff, who have both said that a rate cut in July is warranted.
In an earlier interview with Business Times, Afzanizam said the time may have come for Bank Negara to reduce the OPR.
"This is to help bring down the cost of borrowing among businesses and consumers, as the impact of monetary policy typically takes about six months to be felt in the economy," he said.
Razman also said the central bank should consider reducing the rate to 2.75 per cent, citing a range of pressures, including the ongoing tariff war, which necessitates stronger domestic spending.
"The recent decision by the Thai central bank to cut interest rates also highlights growing concern over slowing economic growth in the region," he added.
Meanhile, other regional central banks have already moved decisively. Bank Indonesia has cut its benchmark rate twice this year, bringing it to 5.50 per cent.
The Bank of Thailand has also lowered its policy rate to 1.75 per cent, citing persistent economic softness. In June, the Philippines' central bank trimmed its rate to 5.25 per cent and signalled further cuts may follow.
Vietnam's central bank reduced short-term bill rates and encouraged commercial banks to lower deposit and lending rates.
Meanwhile, Singapore's Monetary Authority took action in April by slowing the pace of appreciation for the Singapore dollar, effectively relaxing financial conditions without changing interest rates directly.
Against this backdrop, Malaysia now stands out as one of the few economies in the region that has yet to cut interest rates this year.
Whether Bank Negara joins the club on July 9 remains to be seen. Headline inflation has stayed manageable and the ringgit has stabilised somewhat after the SRR cut.
Still, some economists argue that acting now, even pre-emptively, could help support domestic confidence and credit growth amid an uncertain external environment.